Tax change will impact alimony payers, recipients

On behalf of Nachlis & Fink posted in spousal support on Tuesday, February 20, 2018.

A major tax reform bill was passed by the federal government that will bring many new changes to the rules Americans must follow to stay current on their income reporting. One of those changes applies to payers and recipients of alimony (called "spousal support" in California). While Californians who have spousal support agreements and orders in place prior to the end of 2018 will not be subject to these changes, anyone whose divorce is finalized after December 31, 2018, will be required to follow the new system.

The system includes the removal of the alimony deduction from a payer's taxable income. Under the old plan, a person who paid spousal support to an ex-spouse could deduct that amount from their taxable income and reduce their overall tax obligation. The recipient of the payments had to pay taxes on that income and, generally, because of their financial situation, their tax bracket level was lower than that of the paying spouse.

It is imporatant to note that this chnage does not impact child support. Child support has never been deductible by the paying parent, nor incluable as income to the recipient parent.

For post-2018 divorces, though, payers will have to pay their spousal support with after-tax dollars. This will likely result in people paying more income tax. Payers of spousal support generally make more income than their recipient exes and, therefore, are generally in higher tax brackets than those who get alimony.

The alimony tax break was often seen as a means of helping divorcing parties come to agreements regarding important end-of-marriage matters. Without it, some couples may struggle to find common ground on matters of support, property and what is fair for them as their marriage ends.

For more information on this topic, readers are advised to work with their family law attorneys to better understand how this tax change may impact them, and whether existing spousal support arrangemernts should be modified in 2018 to deal with this change in the law.